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UPDATE ON THE EBA REPORT ON LIQUIDITY MEASURES UNDER ARTICLE 509(1) OF THE CRR – RESULTS BASED ON DATA AS OF 30 JUNE 2019

08 APRIL 2020

EBA/REP/2020/13

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Contents

Abbreviations 3

1. Summary 4

Trends in the LCR 6

Composition of liquid assets, outflows and inflows 7

LCRs across business models 10

LCRs in different currencies 11

Annex 12

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Abbreviations

COVID-19 coronavirus disease 2019

CRR Capital Requirements Regulation

EBA European Banking Authority

ECB European Central Bank

EHQCB extremely high-quality covered bond

EU European Union

EUR euro

GBP pound sterling

G-SII global systemically important institution

LCR liquidity coverage ratio

O-SII other systemically important institution

SMEs small and medium-sized enterprises

USD United States dollar

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1. Summary The results of the report represent the LCR levels across institutions as of June 2019 and do

not reflect the potential consequences of the existing COVID-19 situation1. The EBA believes

that, although precise information is not reported in this report, the liquidity position of EU

institutions in December 2019, before the outbreak, did not significantly differ from the main

conclusions of this report.

Trends in the LCR: The weighted average LCR for the monitored sample of 134 banks2 is 147%

as of the end of June 2019. 78% of the banks in the sample had an LCR above 140% at that

date. The LCR, on average, has always been above 100% since September 2016 and banks have

increased it by approximately 100 basis points since December 2017. The number of banks

with a shortfall (i.e. a shortfall in liquid assets to comply with the minimum requirement of

100%) decreased from seven at the end of September 2016 to three at the end of June 2019.

The aggregate liquidity shortfall decreased from over EUR 26.7 billion at the end of September

2016 to EUR 4.7 billion at the end of June 2019.

Composition of liquid assets and of outflows and inflows:

o Composition of liquid assets: The largest part of LCR liquidity buffers consists of Level 1

assets in the form of cash and central bank reserves, as well as securities (including

EHQCBs). GSIIs and O-SIIs, on average, tend to hold higher shares of central bank

reserves and lower levels of EHQCBs than other banks. Overall, the liquidity buffer

(before the application of the cap on liquid assets) is approximately 16.0% of total

assets.

o Liquidity outflows: On average, liquidity outflows (post-weight) represent

approximately 16.1% of total assets. GSIIs and O-SIIs show a higher proportion (16.7%)

than other banks (10.1%). As expected, for both groups of banks, the main component

of the liquidity outflows is non-operational deposits (e.g. short-term deposits from

financial customers), which tend to have higher run-off rates and account for 6% of total

assets.

o Liquidity inflows: Liquidity inflows (post-weight and before the cap) relative to total

assets for GSIIs and O-SIIs are 5.3% of total assets. This proportion is higher than it is for

other banks (2.8%).

1 The possibility of making used of liquid assets during times of stress (resulting in an LCR below 100%) is foreseen in liquidity regulation (Article 412(1) of the CRR (and Article 4(3) of the Commission Delegated Regulation (EU) 2015/61)) as maintaining the LCR at 100%, which, under such circumstances, could produce undue negative effects on the credit institution and other market participants.

2 These 134 banks represent, on average, 80% of the total assets of the EU banking sector (based on data from the Statistical Data Warehouse of the ECB). The results for all banks and for groups of banks (all EU banks, G-SIIs, O-SIIs and others) do not include subsidiaries. Nevertheless, the results by country do include subsidiaries (see annex).

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LCR by business models: For the monitored sample (157 banks),3 the LCR exceeds, on average,

the minimum requirement of 100% for all business models. Mortgage banks show the highest

LCRs (average LCRs of 376%), well above the EU average. Locally active savings banks and

public development banks also show an LCR above 200%. Cross-border universal banks

(composed of large banks) and local universal banks show the lowest LCR levels (142% and

155%, respectively).

LCRs in different currencies: In normal times, it is expected that banks can easily swap

currencies and can raise funds in foreign currency markets. However, the ability to swap

currencies may be constrained during stressed conditions (as seen during the financial crisis).

The LCR Delegated Regulation4 does not require institutions to have an LCR in foreign

currencies above a minimum requirement. Nevertheless, Article 8(6) of the LCR Delegated

Regulation requires banks to ensure that the currency denomination of their liquid assets is

consistent with the distribution by currency of their net liquidity outflows. Therefore, it is

useful to understand how the LCRs in all currencies differ from the LCRs in significant

currencies:

o A total of 43 banks reported euros as a significant (foreign) currency. Of these banks, 58%

showed an LCR in euros lower than their LCR in all currencies and, for 38% of these banks,

the LCR in euros was below 100%.

o A total of 79 banks reported US dollars as a significant (foreign) currency. Of these banks,

58% showed an LCR in US dollars lower than their LCR in all currencies and, for 47% of

these banks, the LCR in US dollars was below 100%.

o A total of 23 banks reported pounds sterling as a significant (foreign) currency. Of these

banks, 83% showed an LCR in pounds sterling lower than their LCR in all currencies and,

for 43% of these banks, the LCR in pounds sterling was below 100%.

For the majority of the banks, the ratio for total figures (reporting currency, i.e. across all

currencies) was higher than the same ratio considering only each individual significant foreign

currency (euros, US dollars and pounds sterling). This implies that banks are likely to hold a

higher liquidity buffer in relation to their net cash outflows in the domestic currency than in

significant (foreign) currencies. Thus, at the aggregate level, the surplus in liquidity coverage

in all currencies offsets (or dominates) the liquidity shortfall in other significant currencies.

3 The results by business model include subsidiaries with a business model different from that of their mother company. One caveat to the analysis by business model is the representativeness of the sample, since there is a high concentration of banks with two bus iness models (see annex).

4 Commission Delegated Regulation (EU) 2015/61.

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Trends in the LCR

Note: LCR evolution based on a consistent sample across reporting dates.

Note: LCR shortfall evolution based on a consistent sample across reporting dates.

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Composition of liquid assets, outflows and inflows

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LCRs across business models

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LCRs in different currencies

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Annex

Table 1: Number of banks included in the June 2019 analysis

Country ISO code All banks Of which

subsidiaries GSIIs/O-SIIs

Of which subsidiaries

Austria AT 7 1 3 1

Belgium BE 8 2 7 2

Bulgaria BG 4 3 4 3

Cyprus CY 2

1

Czechia CZ 3 3 3 3

Germany DE 15

9

Denmark DK 4

4

Estonia EE 4 3 3 3

Spain ES 12

5

Finland FI 4

1

France FR 10 1 6

United Kingdom GB 11

7

Greece GR 4

4

Croatia HR 3 3 3 3

Hungary HU 3 2 3 2

Ireland IE 12 4 5 2

Iceland IS 3

3

Italy IT 11

3

Lithuania LT 3 2 3 2

Luxembourg LU 8 2 6 2

Latvia LV 3 2 3 2

Malta MT 4 1 3 1

Netherlands NL 4

3

Norway NO 3

1

Poland PL 3 1 3 1

Portugal PT 6 1 4 1

Romania RO 3 2 3 2

Sweden SE 7

3

Slovenia SI 3

2

Slovakia SK 3 3 3 3

Total 170 36 111 33

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Table 2: Number of banks included in the evolution analysis5 if balanced sample criteria apply

Country ISO code All banks GSIIs/O-SIIs

Austria AT 4 1

Belgium BE 6 5

Bulgaria BG 1 1

Cyprus CY 1 1

Germany DE 13 8

Denmark DK 4 4

Estonia EE 1

Spain ES 11 4

Finland FI 2 1

France FR 9 6

United Kingdom GB 11 7

Greece GR 4 4

Hungary HU 1 1

Ireland IE 1 1

Italy IT 8 2

Luxembourg LU 2 1

Malta MT 2 2

Netherlands NL 3 3

Norway NO 2 1

Poland PL 2 2

Portugal PT 4 3

Romania RO 1 1

Sweden SE 5 3

Slovenia SI 3 2

Total 101 64

Table 3: Number of banks6 submitting liquidity coverage data (by business model)

Business model All

banks Of which

subsidiaries

Cross-border universal banks 47 1

Custody banks 7

Local universal banks 57 17

Locally active savings and loan associations/cooperative banks 9

Mortgage banks including pass-through financing mortgage banks 3

Public development banks 6

5 All trend analyses are shown by group of banks (total EU/G-SIIs, O-SIIs and others) and therefore exclude subsidiaries.

6 Results by business model include subsidiaries with a bus iness model different to the one of their mother company.

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Other business models 28 5

Total 157 23

Table 4: Definition of business models

Name Description

Automotive and consumer credit banks Banks specialising in originating and/or servicing consumer

and/or automotive loans to retail clients

Building societies Banks specialising in the provision of residential loans to retail

clients

Central counterparties Banks specialising in setting trading accounts, clearing trades,

collecting and maintaining margin monies, regulating delivery and reporting trading data

Cross-border universal banks Cross-border banking groups engaging in several activities including retail, corporate and investment banking and insurance

Custody banks

Banks specialising in offering custodian services (i.e. they hold

customers ’ securities in electronic or physical form for safe

keeping to minimise the risk of loss). These banks may also

provide other services, including account administration, transaction settlements, collection of dividends and interest payments, tax support and foreign exchange

Local savings banks

Banks that focus on retail banking (payments, savings products,

credit and insurance for individuals or SMEs) and operate

through a decentralised distribution network, providing local and regional outreach

Local universal banks Banks specialising in originating and/or servicing consumer loans to retail clients and SMEs

Merchant banks

Banks engaging in financing domestic and international trade by

offering products such as letters of credit, bank guarantees, and collection and discounting of bills

Mortgage banks Banks specialising in directly originating and/or servicing

mortgage loans

Other specialised banks Other specialised banks such as promotional banks and ethical

banks

Private banks Banks providing wealth management services to high net worth individuals and families

Public development banks Banks specialising in financing public sector projects and/or the

provision of promotional credit or municipal loans

Security trading houses

Banks facilitating trading done in derivatives and equities

markets by guaranteeing the obligations in the contract agreed between two counterparties and/or by holding securities and

other assets for safe keeping and record keeping on behalf of corporate or individual investors

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Methodological note on the analysis of the LCR by currency

The LCRs by different currencies are calculated as the liquidity buffer over net cash outflows across

all currencies or by using figures per individual significant (foreign) currency7 (limited to euros, US

dollars and pounds sterling).

The objective is to test whether there are any currency-specific patterns in the liquidity profiles of banks. The indicator demonstrates whether the difference between the ratio of the liquidity buffer and net cash outflows for a specific foreign currency is more pronounced than the same ratio for all currencies.

𝐿𝐶𝑅 𝑐𝑢𝑟𝑟𝑒𝑛𝑐𝑦 =𝐿𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦 𝑏𝑢𝑓𝑓𝑒𝑟𝑐𝑢𝑟𝑟𝑒𝑛𝑐𝑦

𝑂𝑢𝑡𝑓𝑙𝑜𝑤𝑠𝑐𝑢𝑟𝑟𝑒𝑛𝑐𝑦 − 𝑀𝑖𝑛(𝐼𝑛𝑓𝑙𝑜𝑤𝑠𝑐𝑢𝑟𝑟𝑒𝑛𝑐𝑦 , 0.75× 𝑂𝑢𝑡𝑓𝑙𝑜𝑤𝑠𝑐𝑢𝑟𝑟𝑒𝑛𝑐𝑦)

where currency = reporting currency (all currencies), euros, US dollars, pounds sterling.

7 Article 415(2) of the CRR indicates that a currency is considered significant if the currency-denominated liabilities are higher than 5% of total liabilities. The analysis is limited to foreign si gnificant currencies, meaning that only significant currencies different from the legal currency in the country of origin of each individual bank are included (e.g. a UK bank with positions in euros, pounds sterling and US dollars over 5% of total liabilit ies will be considered in the analysis only for euros and US dollars, but not for pounds sterling).

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